The Roles of Aid in Politics Putting China in Perspective

The US government is not alone in facing such daunting obstacles to the promotion of political reforms in developing countries through foreign aid. To varying degrees and for various reasons, ‘aid fatigue’ afflicted other industrialized countries in the mid-1990s, many of which joined the United States in reducing annual aid appropriations.⁶⁵ As in the US case, aid programmes associated with every aspect of sustainable development clashed with domestic interests and other foreign-policy objectives pursued by these donors, particularly those relating to fiscal austerity, trade, and foreign investment. In addition, the limits of externally imposed pressure for internal reform, both political and economic, became increasingly evident as donors exposed their conditionality programmes to the test of practical experience.⁶⁶

For the United States, however, it may be argued that the obstacles are most acute and the lessons are most sobering. As the leading source of foreign aid during the cold war, the United States assumed a prominent position within the development regime even as its aid flows consistently ranked at the bottom of the regime’s qualitative rankings. The intimate relationship between US strategic self-interests and its aid programme was apparent to other donors and recipients alike, leaving a legacy of distrust that endured long after the Soviet Union’s demise. In this regard, US behaviour during the cold war made the prospects for ‘building democracy’ even more difficult. In equating democratization with anti-communism, and in making dubious distinctions between authoritarian (pro-US states which were acceptable and eligible for aid) and totalitarian (revolutionary and/or pro-Soviet regimes deemed unacceptable and not eligible for aid) regimes, US leaders fueled the ideological polarization, the entrenchment of antidemocratic forces, and the corruption of civil societies in many developing countries that have constrained long-term reform. Further, these lapses in policy contributed greatly to the widespread cynicism toward foreign aid that led to the sharp cutbacks in the 1990s.

If the cold war experience leads to even further reductions in US aid, the wrong lesson will have been learned. Expectations regarding the utility of aid in inducing political reform must be modest, and all donors must be more self-conscious in attempting to ‘export’ their own distinctive models of political and economic development. Still, properly designed aid programmes serve vital functions in alleviating poverty within developing countries, reducing ecological decay, stemming population growth, and paving the way for private investment and economic growth – all of which foster democratic governance more effectively than the imposition of political conditionalities. Furthermore, it is clear that the problems facing the developing world in these areas have both immediate and long-term consequences for industrialized nations. Thus if development in the world’s poorest areas is to be truly sustainable, so should be the financial assistance provided by the world’s most prosperous governments, including the United States.

The US government has by no means played a superfluous role in advancing global democratic reform through ‘economic statecraft’.⁶⁷ As noted previously, carefully applied sanctions achieved their stated goals while electoral assistance facilitated historic democratic transitions in such diverse settings as South Africa, Nicaragua, and Russia. The exclusion of aid to repressive regimes in China, Cuba, Myanmar, and Zaire was also consistent with the policy, as was the growing empowerment of non-state actors as conduits of aid. Nevertheless, the experience reviewed above serves as a reminder that the United States, like all countries, pursues at once a vast range of objectives in foreign affairs, many of which serve differing and often competing constituencies at home and abroad. In such a setting, the linkage between principles and practice is tenuous and contradictions between transnational ideals and national self-interest are inescapable.

Hook, Steven W. (2008), “Foreign Aid in Comparative Perspective: Regime Dynamics and Donor Interest,” in Picard, Louis A., Groelsema, Robert and Buss, Terry F. (eds.), Foreign Aid and Foreign Policy: Lessons for the Next Half Century, pp. 86-105, New York: M. E. Sharpe, Inc.

As this chapter has argued, sharp rises in foreign aid spending in recent years have not resolved the long-standing debates about the utility of aid in eradicating extreme poverty or stimulating long-term economic growth. In the view of advocates, aid reflects the generosity, compassion, and best intentions of governments and their people. Others defend aid on utilitarian grounds. They argue that aid serves national self-interests by securing allies, promoting stable and democratic governments, fostering export markets, and subsidizing domestic farmers and manufacturers through the tying of aid. Critics charge that aid flows are wasted on bloated bureaucracies, reward corrupt dictators, and serve as an agent of Northern hegemony. To many proponents of aid, governments can better advance development by encouraging private investment rather than providing assistance. Such aid debates, and the complex and subtle intermingling of national prerogatives and regime norms, will remain part of the landscape of North-South economic relations throughout the new century.

Despite pledges to achieve the Millennium Development Goals by 2015, aid donors face severe limitations in their ability to secure a larger share for development aid in their national economies and budgets. This continuing uncertainty reflects the status of foreign aid as an “impure public good” (Bobrow and Boyer 2005). In presuming a link between improved living standards, reduced population growth, and environmentally sustainable development, on the one hand, and a more stable and collectively beneficial international system, other the other [sic], foreign aid conforms to the standard of public goods. Aid flows are “impure,” however, because they are selective in terms of recipients and in the mix of benefits for the donor as well as for the recipient. Stated another way, global development is a classic collective-action problem that rewards free riding and virtually assures the attainment of suboptimal outcomes (see Ostrom et al. 2001).

The development aid regime is unlikely to achieve its goals under these conditions. The collective resources of aid donors will continue to produce disappointing results so long as aid flows remain fragmented among myriad sources – bilateral and multilateral, public and private. Even within many donor governments, including the United States, the presence of multiple and often competing aid agencies discourages the adoption of coherent development strategies, let alone the effective use of aid transfers by recipients. Pledges to harmonize aid objectives and coordinate the direction and terms of aid transfers remain rhetorical, and they are likely to remain so given the chronic and deeply entrenched intrusion of donor self-interests in aid calculations.

Nonetheless, the increased attention paid to ODA since 2000 provides a basis for optimism that the aid regime can overcome its inherent limitations. Success stories can be found in aid’s role in enhancing food supplies in southern Asia during the 1960s, in stimulating economic growth in South Korea and other East Asian states during the 1970s and 1980s, and in propelling political and economic reforms in Eastern Europe after the collapse of the Soviet bloc. Progress has been made toward debt relief and in the fight against HIV/AIDS in Africa.

Wealthy states took unprecedented steps forward in adopting specific targets for poverty reduction at the Millennium Summit of 2000 and in agreeing upon a unified development strategy at the 2002 Monterrey conference. These efforts reflect a recognition that continued distress in the developing world threatens global prosperity and security. The challenge in the years to come will be to convert this consensus into sustained development cooperation, and the occasional sacrifice of short-term national interests on behalf of enduring transnational concerns.

The three targets discussed above: (i) state strengthening, (ii) market management and (iii) poverty and emergency safety net guarantees all relate to diffuse goals: global goods and economic justice. There is no simple design for aid-use in pursuing these targets, as earlier chapters made clear. Aid channels and modalities to impact these are necessarily context dependent, including emergency aid to protect human capital. What does appear true is that such aid may be more intrusive of sovereignty than previous aid.

Strengthening states appeals broadly to popular concern about threat from the international sphere. Reilly (1999) found that international terrorism, for example, seen as out control in weak states, was the most frequently cited threat to the United States according to the American public. Support for using aid to improve markets can be found among development banks, private international financial and corporate institutions, and their government allies in ministries of finance, trade, commerce and legislative bodies. Support for the twin aid goals – sustainable reduction of poverty and emergency responses – involves helping the most vulnerable and comes from the coalitions generally. It is the poorest after all, who are most endangered by disasters (natural or man-made). Support for long-term poverty reduction through institutions such as the Grameen Bank is popular with the same groups: NGOs, political parties and foundations concerned about global inequities. These coalitions support emergency humanitarian relief and are frequently the most effective advocates of poverty-oriented aid. Even though emergency aid is criticized as a ‘Band-Aid’, unsustainable, and even counter to long-term goals, it is supported by the same humanitarian sentiments that put poverty at the top of the aid policy agenda.

Conclusions: Future Conditions

Development – economic, social, and sustainable – without effective state is impossible.

A major condition for sustainability of future aid is a belief in its efficacy. Such a belief rests on seeing improvements linked to aid. And this, in turn, is affected by what donors and recipients want improved. Complex social processes shape aid use, including the administrative management of donors and the policies and state machinery of recipients. As noted throughout this volume, state institutions make a big difference in development. Adelman emphasized that ‘a government with substantial autonomy, capacity and credibility is required for successful long-term economic growth.’ (Chapter 2). North (1990) shares this view, asserting that institution of formal rules, informal norms and enforcement probabilities determine economic growth. He finds a pressing need to understand how third world and East European polities operate in order to promote development though informal constraints. The focus on institutions in this volume pushes future aid toward attention to informal rules that affect states, markets and vulnerabilities of the poor.

Many aid receiving candidates are anarchical states. In Africa and the post-communist world, terms such as patrimonial, shadow, rent-seeking, semi-sovereign, mafia-like and corrupt have been used to characterize the policy. These two areas have been the major foci for aid in the 1990s. Most of the 50-odd wars of this decade are internal and occur in these two areas. Thus the basic capacity of states to deliver security is problematic. As noted in Chapter 17, aid can play a vital role in rescuing peoples from the damage of conflict. It can also assist state formation, helping build administrative structure and analytical or steering capacity. The vital role these play in development processes has been stressed in earlier chapters (e.g. Chapter 2). Aid to these countries, aimed at state reform, may require unconventional development assistance packages, state strengthening would focus on core functions: legitimate force to uphold order, tax collection to finance public goods, technical assistance to enhance military and tax collections skills and controls to limit corruption, encourage civic norms and expand accountability. These and other governance elements need deepening. Withholding aid has been the major tool for political conditionality. This does not work very well because of pressures to release funds already earmarked. Given this problem, and the desire to aid weak states, on goal of aid must be to acknowledge ends that maximize its relation to political performance and minimize the ability of predatory officials to hijack it for private purposes.

For both rich and poor countries, state failure promises to be the greatest threat in coming decades. Openness and sound economic policies are largely irrelevant in situations where capital flight dominates private market financial calculations. For states to ‘own’ a set of policies, including use of aid, there must be first a state structure. Aid to provide a transition from anarchy must precede aid for a transition to a stable development path. From the states of the former Soviet Union to the collapsed governments in Africa, there is a growing vacuum of political order – a vacuum that aid undertakings are challenged to fill. Aid for political construction requires delicate balancing in which the trade-off between conditionality and ownership is acknowledged. This dilemma is still to be resolved, yet it must be, so that countries with the greatest needs, often ones most troubled by political upheavals, will not continue to be the ones least able to absorb aid efficiently. Resolutions of the dilemma relate to the three targets for aid discussed earlier. To the extent these targets grow among donor motivations, they will point directly to behavioral obstacles for aid effectiveness, such as corrupt or merely under-skilled human capital. This theme is easier to observe than address. A major future task for research on aid effectiveness is to explain how recipient governments can realize stronger capacity as well as some authentic ‘ownership’ of their work as a result of aid. Reducing failures of political institutions in recipients requires prescriptions with greater specificity. We need to know how aid can effect real improvements in politics.

This chapter has looked at changing donor motivations and asked what can and should shape future aid. With decay in recipient country institutions a problem, with a rise in support for global goods, such as environmental protection, and with donors enjoying increased scope to demand concessions from aid recipients, targeting aid to save failing political institutions commands and deserves broad support.

Hout, Wil (2007), The Politics of Aid Selectivity: Good Governance Criteria in World Bank, US and Dutch Development Assistance, London: Routledge.

With the ending of the political dichotomy in world politics around 1990, the good governance principle came to occupy an important position in judgements about political regimes in developing countries. Good governance became an important objective in the policies of many aid-giving Western countries and the main international financial institutions, such as the World Bank. Increasingly, however, good governance and market-oriented economic reform came to be subsumed under one heading, leading to what has been called a post-Washington Consensus.

This book describes in detail the policies of aid selectivity adopted by the World Bank, the Netherlands and the United States since the end of the 1990s. The main assumptions underlying the policies, as well as the key decisions related to the selection of developing countries, are analysed and critically evaluated. A comparison is made between policy making in these three cases and different approaches to selectivity in the United Kingdom. The book brings out the conflicts that may exist between foreign assistance agendas and the desire of governments in developing countries to set priorities for their national development policies.

The Politics of Aid Selectivity is the first extended analysis of selectivity policies of important bilateral and multilateral aid donors and combines a policyanalytical with a quantitative-empirical approach. The book is relevant to students of various sub-fields of development studies and policy analysis, among other areas, and also has international appeal to researchers and policy-makers working in the area of foreign assistance. [book summary]

Huntington, Samuel P. (1970-71), “Foreign Aid for What and for Whom, Part 1,” in Foreign Policy, No. 1 (Winter 1970-71), pp. 161-89.

U.S. assistance to the economic development of poor countries has suffered from the tendencies of its supporters to divorce economic development from over-all US foreign policy objectives and, more generally, to make the case for U.S. economic development assistance in terms of the needs of the poor countries rather than in terms of the interests of the United States. Economic development assistance has been underfunded in part because it has been oversold. In this essay, we have attempted to escape from the rhetoric and sentimentality which has so often been adduced on behalf of foreign aid and instead to take a cold, hard look at the interest of the U.S. in the economic development of poor countries. Three general conclusions seem to flow from this discussion:

1. As the wealthiest country in the world, the United States has a moral obligation to help alleviate the sufferings of poor people in poor countries.

2. The United States has some real but not overriding interest, primarily economic and long-term, in the economic development of poor countries generally; it also has some derived political interest in not disappointing the expectations of other governments that it ought to be interested in the economic development of poor countries.

3. The United States has special interests in the economic development of individual countries which are of particular concern to the U.S. usually for noneconomic reasons and the promotion of whose development is an integral part of over-all U.S. foreign policy towards those countries. Rarely, however, is the economic development of a country the primary interest which the United States has in that country.

In most countries, economic assistance probably helps economic development, but the relationship between levels and types of aid, on the one hand, and economic growth, on the other, is by no means clear. There may also be other policies, particularly in the areas of trade and encouragement of private investment, by which rich governments can equally promote economic development of poor countries. Finally but most importantly, the governments of poor countries have good reasons to prefer less aid rather than more aid.

From this, one can conclude that the U.S. ought to maintain at least three different types of economic assistance programs: humanitarian and related programs aimed primarily at alleviating immediate evils to poor peoples’ general economic assistance grants channeled through the World Bank and other multilateral agencies to assist in the over-all economic development of the Third World; and bilateral programs which are an integral part of U.S. foreign policy toward countries where the U.S. has special political, economic or security interests.

Huntington, Samuel P. (1971), “Foreign Aid for What and for Whom, Part 2,” in Foreign Policy, No. 2 (Spring 1971), pp. 114-134.

Except for those who oppose all forms of “foreign aid” no matter what purpose it serves, little reason exists to talk about foreign aid as an end in itself. The discussion of policy should be in terms of, first, the desirability and importance of the goals which may be served by foreign aid, and, then, the relative effectiveness of aid as against other means for achieving those goals. Given the multifarious purposes to which aid may contribute, a “foreign aid act” and a “foreign aid agency” are clearly anachronisms. Current aid programs need to be disaggregated in terms of their purposes and new programs inaugurated to reflect emerging U.S. interests in global maintenance.

By focusing on these purposes, the supporters of foreign aid would shift the focus of attention from a means which has politically negative connotations to ends which are more likely to have positive appeal. In addition, they would transform the effort to develop a “constituency” for foreign aid (which is the equivalent of developing a constituency for “subsidies”) into more meaningful and successful efforts to develop special constituencies for the particular purposes which foreign aid may serve. The net result of this disaggregation could be more or less foreign aid than there has been in the recent past, but happily no one would know for sure which it was.

Focusing on the ends of aid should thus clarify both purpose and understanding. Above and beyond this, however, there is the possibility that foreign aid even as a means may be in the process of becoming less meaningful. Foreign aid, as it is commonly conceived and practiced, was a product of the emergence of the Western state system in the sixteenth and seventeenth centuries. It has normally meant military, economic, or political assistance from one government to another one.

In many areas of policy, however, the distinction between foreign and domestic programs has already become blurred. Private organizations, international bodies, and “domestic” agencies of different governments blithely pursue their objectives across international boundaries. As these transnational operations expand, the identification of “aid flows” themselves becomes increasingly difficult, and trying to pinpoint the net benefits and costs of any particular transaction to national territories practically impossible. When an American-based multinational corporation uses profits from a plant it has previously constructed in Brazil to build a new one in Peru, who is contributing to the development of whom? When one government lends to another at less-than-commercial interest rates so that the borrower can buy capital goods from the lending government's country, how much of the loan is aid, how much of it is an export subsidy, and how much of it just a straight business deal? Such questions are becoming more and more frequent and more and more difficult to answer. As such relationships become increasingly complex and diversified, the entire concept of foreign aid could itself become anomalous and irrelevant.

Imbeau, Louis-Marie (1988), “Aid and Ideology,” in European Journal of Political Research, Vol. 16, No. 1, pp. 3-28.

The substantive purpose of this paper was to find an explanation for the variation in aid allocations among donors. A collective bounded rationality model was developed in order to include in the explanation ideological factors and environmental factors as well. The empirical estimations have confirmed that the model as a whole explained up to 96% of the variance in aid as a percentage of GNP. The substantive results are summarized in Table 7.

As far as the relationship between ideology and aid policy is concerned, the findings reported here constitute a strong confirmation of the importance of ideological factors in explaining variations in aid allocations as a percentage of GNP. Data reported in Table 7 suggest that ideology better explains levels of aid than changes in aid allocations. Actually, ideology is the best explanation of aid giving in a model including the Instrumental and Humanitarian explanations. This is consistently true for all four estimations.

The idea that ideology is related to public policy is well documented in the empirical quantitative literature. Indeed, one of the political factors most often related to public policy is ideological orientation of government through the use of measures of party ideology. It has been shown, for instance, that ideology was significantly related to variations in welfare expenditures (Cameron 1978; Castles and McKinlay 1979, Hicks and Swank 1984), in fiscal and monetary policies of OECD countries (Cameron 1984, Hibbs 1977, Hicks 1984), in public expenditures among American states (Nice 1982) as well as among Canadian provinces (Lachapelle 1986).

The idea that ideology influenced aid policy has also been documented. Betz and Kreile (1982: 99), for example, wrote that ‘free market ideology provides the prism through which German interests are perceived’. For Holm (1982: 73), ‘the development of Danish society is seen as a result of solidarity, state control and intervention to prevent too large differences to develop within the Danish society. In relation to the Third World, the same type of intervention and solidarity is advocated by Danish governments’. In the same vein, McKinlay and Naraine (1982: 47) argue that ‘in general, right-wing parties . . . are more prone to spill-over into neomercantilism; left wing parties under the stronger influence of state capitalism and an extensive commitment to social welfare . . . can even spill-over into the interventionist stance urged by the NIEO demands’. In all these cases, ideology is put into relation with levels of aid, not changes.

Ideology is an organized set of values and goals about the development of a society. These values and goals structure or colour policy choices over the long run. Each society, to a certain extent, has its own way of translating into policy choices its ideological structure. If the ideological orientation of governments changes sensibly over time (with changes in party control over executives), the ideological orientation of electorates is less prone to change (though changes can still be observed), as is the ideological orientation of the public service as a whole (if only because of the relative stability of public .service officers). Therefore, on the whole, ideology is more or less constant within a polity (at least when we consider short 20-year periods). Because of this, the effect of ideology is more likely to appear in a cross-national design than in a cross-sectional one.

Of course, the effect of ideology might vary from one policy type to another and from one policy instrument to another. The redistributive dimension of development aid as well as the implicit solidarity it supposes in international economic relations make this type of public policy an area where Left-Right ideological differences may be expected to have an effect. The findings reported here constitute a confirmation of this proposition and they are consistent with the growing body of comparable findings documenting the relation between ideology and policy. Ideology, like attitudes and values, is part of what has been called ‘political subjectivity’ (Brown 1980) and is to be related with ‘objective’ factors in assessing its relation to aid - giving behaviour. It has been shown (Imbeau 1981), through a computer simulation, that the relationship between objective and subjective factors on the one hand and foreign policy behavior on the other hand, must be assessed simultaneously if one wants to get a reliable picture of foreign policy decision-making. With this in mind, it would seem that, before engaging more in empirical research on this question, the ideology-policy relation should be given attention at the theoretical and the methodological levels, answering questions like: how does ideology influence policy choices, one type of policy instrument or another, one type of policy area or another?; how should we measure the ideological orientation of policy actors?; are party-based measures satisfying?; are any indicators of policy choices more efficient in expressing the effect of ideology? This paper is a contribution to this general query.